PNC Bank, N.A. v. Presbyterian Retirement Corporation, Inc. et al

Filing
33

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
PNC BANK, N.A.,
Plaintiff,
v.
PRESBYTERIAN RETIREMENT
CORPORATION, INC., et al.,
Defendants.
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CIVIL ACTION 14-0461-WS-C
ORDER
This matter comes before the Court on the Motion of Infirmary Health System, Inc. to
Intervene (doc. 11). The Motion has been briefed and is now ripe.
I.
Relevant Background.1
Defendant Presbyterian Retirement Corporation, Inc. (“Presbyterian”) operates
Westminster Village, a continuing care retirement community in Spanish Fort, Alabama.2 Some
years ago, Presbyterian borrowed large sums of money, both through direct loans made by the
predecessor of plaintiff, PNC Bank, N.A. (“PNC Bank”), and through revenue bonds under
which its repayment obligations were guaranteed by putative intervenor Infirmary Health
System, Inc. (“Infirmary Health”). With respect to the latter, Presbyterian is contractually bound
1
In-depth recitation of the facts and circumstances precipitating this litigation is
not necessary to understand and adjudicate the pending Motion to Intervene; rather, a broad
sketch will suffice. To be clear, the Court makes no findings of fact at this early stage, but
simply culls what appear to be uncontested facts from pleadings and briefs submitted to date.
Insofar as any party disputes the accuracy of any fact set forth herein, rest assured that there will
be ample opportunity to litigate that issue at a later date. This statement of “facts” is neither final
nor binding on anyone.
2
This facility is owned by defendant The Special Care Facilities Financing
Authority of the City of Daphne (the “Authority”). For purposes of the pending Motion to
Intervene, it is unnecessary to address the Authority’s status and involvement; therefore, this
Order will not otherwise reference or discuss the Authority.
to reimburse Infirmary Health for payouts under that guaranty, and has granted Infirmary Health
a mortgage on and a security interest in Westminster Village and other collateral. Likewise,
Presbyterian has promised to repay the PNC Bank direct loans, and has granted PNC Bank a
mortgage on and a security interest in Westminster Village and other collateral.
Both the revenue bonds guaranteed by Infirmary Health and the direct loans made by
PNC Bank matured more than a year ago, at which time they were subject to balloon payment
requirements. Presbyterian did not make (and was evidently unable to make) those balloon
payments, thereby placing it in default as to both sets of obligations. When the bondholders
called upon Infirmary Health to fulfill its guaranty commitments, it did so, paying out nearly
$13.5 million in September 2014 to satisfy in full Presbyterian’s outstanding indebtedness on
those bonds. Infirmary Health now looks to Presbyterian to reimburse it for that guaranty
payment. Similarly, PNC Bank contends that Presbyterian owes it more than $6.8 million in
unpaid principal on certain bonds, as well as an additional $1.3 million on certain swap
obligations, all apparently relating to its direct loans.
As a result of the foregoing events, Presbyterian is in default of its payment obligations to
PNC Bank and Infirmary Health, both of which are secured creditors of Presbyterian and
mortgagees as to Westminster Village. For its part, PNC Bank commenced this lawsuit against
Presbyterian on October 2, 2014, seeking to exercise certain remedies under the relevant
contracts, including expedited appointment of a receiver to manage Westminster Village pending
a contemplated foreclosure sale that PNC Bank has noticed for March 2015. To that end,
contemporaneously with the filing of its Complaint, PNC Bank filed a Motion for Appointment
of Receiver, requesting that this Court appoint a receiver on both legal and equitable grounds to
take immediate possession and control of Westminster Village. (See doc. 3.) To accompany that
Motion, PNC Bank filed an extensive proposed order that would, among other things, empower
the receiver to market and sell Westminster Village and to file a bankruptcy petition on
Presbyterian’s behalf. (See doc. 3, Exh. A.) That proposed order also would enjoin all persons,
firms and corporations (including Infirmary Health) from taking steps to enforce any lien or
mortgage as to Westminster Village, absent express court permission to do so. (Id.) In filing its
Complaint and seeking immediate appointment of a receiver, PNC Bank neither named
Infirmary Health as a party nor obtained Infirmary Health’s consent. For its part, Infirmary
Health opposes all of PNC Bank’s activities described herein.
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On October 14, 2014, a mere 12 days after PNC Bank filed the Complaint and Motion for
Appointment of Receiver, Infirmary Health filed a Motion to Intervene pursuant to Rule 24 of
the Federal Rules of Civil Procedure. In this filing, Infirmary Health expresses profound
disagreement with PNC Bank’s proposed strategy of appointing a receiver to manage
Westminster Village, insisting that the pathway charted by PNC Bank would impair the value of
this facility rather than preserve it, thereby damaging Infirmary Health’s interests in such
collateral. Moreover, Infirmary Health asserts that PNC Bank’s actions of unilaterally noticing a
foreclosure sale and moving for appointment of receiver are in violation of a December 2005
Intercreditor Agreement that governs their relative priorities, rights and duties with respect to the
collateral, including Westminster Village. On that basis, Infirmary Health requests leave to
intervene in this matter to protect its rights and interests as a secured creditor, to oppose the
appointment of a receiver, to bar PNC Bank from relying on or enforcing any aspect of the
Intercreditor Agreement, and to obtain damages for PNC Bank’s purported breaches of said
Intercreditor Agreement. Infirmary Health’s position is that, “[g]iven IHS’s significant and
senior interest in the Collateral, IHS must be allowed to be heard in order for its rights and
interests to be protected.” (Doc. 11, at 20.)
For its part, PNC Bank asserts that Infirmary Health “is not entitled to intervene either as
a matter of right or permissively in this receivership proceeding.” (Doc. 22, at 5.) Despite its
contention that intervention would not be proper under Rule 24, PNC Bank also states that it
“does not object” to the Motion because Infirmary Health “is a uniquely-situated creditor.”
(Doc. 22, at 6.) Apparently, PNC Bank would have this Court grant the Motion to Intervene
even as it concludes that Infirmary Health does not meet the Rule 24 criteria for intervention.
Given the curious tension inherent in PNC Bank’s position, it would be unwise and inappropriate
summarily to grant the Motion to Intervene as unopposed. For that reason, the undersigned will
scrutinize the Motion on the merits.
II.
Analysis.
“Rule 24 provides two avenues for a nonparty to intervene in a lawsuit; intervention as of
right and intervention with permission of the court.” In re Bayshore Ford Trucks Sales, Inc., 471
F.3d 1233, 1246 (11th Cir. 2006). To intervene as of right pursuant to Rule 24(a)(2), a person
“must show that it has an interest in the subject matter of the suit, that its ability to protect that
interest may be impaired by the disposition of the suit, and that existing parties in the suit cannot
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adequately protect that interest.” Mt. Hawley Ins. Co. v. Sandy Lake Properties, Inc., 425 F.3d
1308, 1311 (11th Cir. 2005).3 Thus, the three-pronged inquiry for a timely Rule 24(a)(2) motion
consists of the following: (i) whether Infirmary Health has shown that it has an interest in the
subject matter of this lawsuit; (ii) whether Infirmary Health has shown that its ability to protect
such interest may be impaired by disposition of the suit; and (iii) whether Infirmary Health has
shown that existing parties cannot adequately represent its interest. See Rule 24(a)(2),
Fed.R.Civ.P. (intervention as of right is required where a person “claims an interest relating to
the property or transaction that is the subject of the action, and is so situated that disposing of the
action may as a practical matter impair or impede the movant’s ability to protect its interest,
unless existing parties adequately represent that interest”).
With regard to the first element, the question is whether Infirmary Health’s “interest in
the subject matter of the litigation is direct, substantial and legally protectable.” Georgia v. U.S.
Army Corps of Engineers, 302 F.3d 1242, 1249 (11th Cir. 2002); see also Bayshore, 471 F.3d at
1246 (“[t]he prospective intervenor must demonstrate an interest relating to the property or
transaction which is the subject of the action if relying on Rule 24(a)”) (internal quotation marks
and emphasis omitted). Court documents reflect that Presbyterian owes Infirmary Health more
than $13 million, that it defaulted on that payment obligation, and that this indebtedness is
secured by a mortgage on Westminster Village in Infirmary Health’s favor. PNC Bank brought
this Complaint seeking appointment of a receiver to assume control of Westminster Village.
Given that Infirmary Health’s interest in Westminster Village is direct, substantial and legally
protectable, and given that the value (and, indeed, the fate) of this facility hangs in the balance in
this litigation, it cannot seriously be questioned that the first element of the Rule 24(a)(2) test is
satisfied. See generally WildEarth Guardians v. U.S. Forest Service, 573 F.3d 992, 996 (10th
3
A Rule 24(a) motion must also be timely. See, e.g., Georgia v. U.S. Army Corps
of Engineers, 302 F.3d 1242, 1250 (11th Cir. 2002) (“Before a party can intervene as a matter of
right, it must timely move to intervene.”). Infirmary Health’s Motion to Intervene is timely
under any reasonable construction of the term. After all, Infirmary Health submitted its Motion
less than two weeks after the Complaint was filed. No defendant had yet filed a responsive
pleading. No discovery had been initiated. No substantive rulings had been issued. This
litigation will not be delayed in the slightest, and no party will be prejudiced, by the short
interval that elapsed between the filing of the Complaint and the Motion to Intervene.
Accordingly, the Court readily concludes that the Motion is timely.
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Cir. 2009) (“The threat of economic injury from the outcome of litigation undoubtedly gives a
petitioner the requisite interest.”) (citation omitted).
The second element requires Infirmary Health to demonstrate that it “is so situated that
disposing of the action may as a practical matter impair or impede the movant’s ability to protect
its interest.” Rule 24(a)(2). The Eleventh Circuit has explained that, “[w]here a party seeking to
intervene in an action claims an interest in the very property and very transaction that is the
subject of the main action, the potential stare decisis effect may supply the practical
disadvantage which warrants intervention as of right.” Georgia, 302 F.3d at 1258 (citation
omitted). Such is the case here. Infirmary Health maintains that the appointment of a receiver
will “diminish[] the operating prospects of [Presbyterian] and thus the value of [Westminster
Village],” thereby substantially impacting (and, in Infirmary Health’s view, harming) the
collateral in which it possesses a secured interest. Once the receiver has been appointed, it may
be difficult or impossible for Infirmary Health to undo this alleged harm via subsequent legal
proceedings. Thus, it appears beyond cavil that disposition of this action may as a practical
matter impair or impede Infirmary Health’s ability to protect its interest in Westminster Village.
As for the third and final element, Infirmary Health bears the burden of showing that the
existing parties to this action do not adequately represent its interest. “But this is not an onerous
burden.” Defenders of Wildlife v. Bureau of Ocean Energy Management, 2010 WL 5139101, *3
(S.D. Ala. Dec. 9, 2010); see also Georgia, 302 F.3d at 1255 (“The proposed intervenor has the
burden of showing that the existing parties cannot adequately represent its interest, but this
burden is treated as minimal.”) (citations and internal quotation marks omitted).4 PNC Bank
submits that Infirmary Health’s Motion to Intervene founders on this requirement, because its
interest may be “adequately protected by a receiver through procedures supervised by the district
court allowing creditors to file claims and object to the receiver’s actions.” (Doc. 22, at 5.) But
what about Infirmary Health’s interest in Westminster Village not going into a forced
4
Indeed, a putative intervenor “need only show that the current [defendants’]
representation may be inadequate, … and the burden for making such a showing is minimal.”
Stone v. First Union Corp., 371 F.3d 1305, 1311 (11th Cir. 2004) (citation and internal quotation
marks omitted); see also Defenders of Wildlife, 2010 WL 5139101, at *3 (finding that putative
intervenor had satisfied “inadequate representation” element of Rule 24(a)(2) by demonstrating
that existing defendant’s representation of intervenor’s interest “may be inadequate, despite the
obvious overlap between them”).
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receivership in the first place? PNC Bank does not address that critical point, which goes to the
heart of the pending request for intervention.
More broadly, any suggestion that Infirmary Health’s interest in this case will be
adequately represented by existing parties is demonstrably incorrect. Although PNC Bank is
similarly situated to Infirmary Health in the sense that both are secured creditors to which
Presbyterian owes millions of dollars, it is well documented that these two secured creditors have
vastly divergent opinions as to what should happen next. PNC Bank wants a receiver appointed
immediately, with Westminster Village going on the auction block in a few months. Infirmary
Health wants neither of these events to occur, but instead favors some sort of workout,
restructuring or orderly sale that allows stability and continuity of operations at Westminster
Village. Under the circumstances, it is painfully obvious that PNC Bank cannot and will not
adequately represent Infirmary Health’s interest. By the same token, the notion that Presbyterian
might protect Infirmary Health’s interest because they both oppose receivership may have
superficial appeal, but breaks down when one considers Presbyterian’s $13+ million
indebtedness to Infirmary Health, and the clear differences in interests and litigation positions
that may and likely will emerge from same. Accordingly, the undersigned is satisfied that
Infirmary Health has met its light burden of showing that existing parties and any duly appointed
receiver may not adequately represent its interest herein.
III.
Conclusion.
For all of the foregoing reasons, the Court concludes that Infirmary Health is entitled to
intervene in this matter as of right, pursuant to Rule 24(a)(2), Fed.R.Civ.P. Accordingly, the
Motion of Infirmary Health System, Inc. to Intervene (doc. 11) is granted, and movant is
granted leave to intervene in this action. The Clerk of Court is directed to add Infirmary Health
System, Inc. as a party defendant. The Answer and Counterclaim (doc. 12) previously submitted
by Infirmary Health is deemed filed as of today’s date, and the time for PNC Bank to file an
answer or other responsive pleading to the Counterclaim pursuant to Rule 12(a)(1)(B), will run
from today’s date.
DONE and ORDERED this 4th day of November, 2014.
s/ WILLIAM H. STEELE
CHIEF UNITED STATES DISTRICT JUDGE
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